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The market shifts its focus to Fundamentals after the Election Mandate
Elections have dominated much of the market directions for quite a while now. With the Lok Sabha
results and the elections out of the way, the euphoria created by it is slowly fading away as the focus
shifts back on fundamentals. There has been an increase in the foreign and domestic investments
because their faith and confidence has been restored in the market as a stable government once
again takes charge.
However, there are certain immediate worries for the market participants to look out for. The current
liquidity crunch in the economy as an impact of the NBFC crisis last year, the outflows of the FIIs,
slowdown in the volume growth of the consumption sector, softness in the auto sales and the FMCG
sectors & their recent results, the lagging credit growth and the GDP growth slowing down has
everyone worried. A slowdown in government spending in the last three quarters is also one of the
reasons for the economic slowdown in general which is affecting the GDP figures of the country.
We believe a correction for the inventory build-up is under process to try and solve the extent of the
unexpected slowdown in the consumer demand. RBI has made efforts to ease the liquidity position
in the country with tools such as the OMOs and two USD-INR swaps; more action is needed to make
it better. However, we believe the economy should recover in Q2FY2019-20 with the increase in the
capex which will drive the corporate earnings growth.
The Indian equities have underperformed in the first two months due to lack of enthusiasm amongst
institutional investors and outflows of FIIs. However, it has outperformed by almost 8% since then and
the recent trend indicates an upward movement.
With the trade war and the crude oil prices on the rise, the global economy remains a fragile
environment. The flattening of the US yield curve followed by an inversion acts as a warning for tough
days to come ahead. The weak Chinese economy and their structural problems are one of the major
reasons for uncertainty at the global front. All the same, China has launched some major monetary
and fiscal policies as an effort to stabilize the country’s growth. There is an impact of these measures,
albeit they are small.
India has done a good job in making significant progress in achieving macro stability since the last
crisis of the taper tantrum. The CPI has reduced by almost 9% since 2013 and so has the fiscal deficit.
The reforms carried out by the government such as the implementation of the Goods and Service
Tax (GST), the Insolvency and Bankruptcy Code (IBC), establishment of the Real Estate Regulatory
Authority (RERA) in states, formation of the Monetary Policy Committee (MPC) and the inflation
targeting regime deserve a notable mention.
Lastly, the NPA and stressed assets problem is being tackled through the IBC and the banking sector
is in a position to support growth once again with the recapitalization of state-owned banks. As a
result of the above reforms, the growth of the corporate sector earnings has been sub-par. However,
these results will help in the long term growth to improve the Indian economy. Despite the current
slowdown, the future prospect